Don’t Overlook U.S. Grain Stocks on Friday in Favor of Plantings: Braun

March 31st, 2017

By:

Category: Grains

Wheat, corn and soybean(Reuters) – The agriculture market is expecting two major reports from the U.S. Department of Agriculture on Friday. And although the planting intentions of farmers tends to garner more hype than grain stocks, the associated moves in Chicago futures prices might suggest this trend should be reversed.

On the last trading day of March, USDA releases planting intentions for the 2017 U.S. summer growing season. The main items of interest are the expected acreages for corn and soybeans, the United States’ top exported crops.

On the same day and time – noon EDT (1600 GMT) – USDA also publishes quarterly grain stocks, which reflects the likely size of stockpiles in the United States as of March 1, exactly halfway through the corn and soybean marketing year.

Traders and analysts usually spend more time talking about prospective plantings rather than the stocks, as the former gives early insight into supply for the upcoming crop year – in this case 2017/18 – while the stocks report, released four times per year, gives direction on the ending stocks for 2016/17.

STOCKS-PRICE LINK

Over the last 12 years, analysts polled by Reuters ahead of planting intentions and March 1 stocks have had mixed luck predicting what USDA will publish. This is evidenced by the large swings in CBOT corn and soybean futures prices which often occur on report day.

But when tracking the average analyst guesses from both the plantings and stocks polls versus the actual figures, the impact on futures prices tend to follow the stocks result more closely than the acreage one.

The most prominent example of this came in 2013, when the planting data was neutral to bullish, but both corn and soybean stocks topped the analysts’ range of estimates – which was the trade’s worst miss on March 1 stocks in recent memory. Front-month corn futures dropped 40 cents per bushel (5.4 percent) and soybean futures closed down 49 cents (3.4 percent) from the prior day’s close.

The exact same scenario happened with the March reports in 2010, though to a slightly lesser degree. The reverse situation happened with corn in the 2011 and 2012 reports, when prospective acres were bearish, but a bullish stocks number pulled prices up by a significant margin.

The exception to this trend could be a situation in which USDA’s published acres contrast the analyst expectations to a much larger degree than the stocks figures do, which was the case for both crops in 2006.

SUPPLY CLARITY

The corn and soybean plantings generally peak the markets’ interest as it is more forward looking than the stocks report. But the intended acres are only the beginning – so much still relies on spring and summer weather, particularly crop yields. And weather could easily alter planting decisions, as only a small percentage of this year’s corn and soybean crops are already in the ground.

Another good reason to focus just as much attention on the stocks report is that the potential ending stocks outcomes tighten up much more on March 1 than in the Dec. 1 report, the first of the marketing year.

This is especially true for soybeans since projected annual exports – the primary use of soybeans in the United Stated – are about 80 percent fulfilled by March 1. The corn scenarios are a little more open since the exports and use are more evenly spread throughout the marketing year than its oilseed counterpart.

In Friday’s stocks report, analysts expect March 1 corn supplies to total 8.534 billion bushels on average. If realized, corn stockpiles would be record-large for the date, narrowly surpassing 1987’s high.

On soybeans, analysts predict a supply of 1.684 billion bushels, which would be the second-highest on record behind 2007, and 10 percent larger than March 1, 2016.

 

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